How ESG helps enterprises attract and retain capital

Sustainability is no longer a simple buzzword. ESG (Environmental, Social, and Governance) has become imperative to long-term competitive success in the corporate business world. What started as a voluntary “feel good” movement just a few decades ago has become a foundational core driver of company revenue, brand reputation, and investment value.

While financial performance remains paramount, companies that operate under demonstrated ESG principles have a leading edge over their competitors. The Global Sustainable Investment Alliance reported that global sustainable investment topped $30 trillion in 2018, up 1,000% percent since 2004. Statistics like these show that an organization’s ESG efforts can be directly linked to stronger business outcomes by making the company more attractive to potential investors, consumers, and employees alike.

ESG frameworks provide an essential layer of discerning information and analysis that can be used to gain a more holistic view of a company. ESG data helps investors and stakeholders better understand an industry or business, determine material risks, and identify opportunities. This information also provides insights on a management team’s ability to solve complex problems such as innovating towards sustainability, maintaining strong growth, and creating long-term value, while at the same time minimizing negative externalities.

Ultimately, a company is only as attractive as the value they offer. A strong ESG proposition supports value creation in a few essential ways: risk mitigation, strong governance, and robust social capital.

Risk mitigation

Risk mitigation, as seen through the ESG framework, means management teams are actively assessing and addressing manageable and unmanageable risks. These risks can be internal or external environmental, social, or regulatory issues that negatively affect a company’s operations.

Proper risk mitigation leads to reduced volatility and provides greater confidence for investors. Stable companies receive better financing and cheaper interest rates, which allow for greater cash flow. Less risk also means better protection for both the company and investors as well as inclusion in ESG and index funds that provide enhanced exposure.

Governance

Companies with strong governance ensure accountability to their investors and clients through due diligence, taking actions like analyzing the composition of their board of directors and senior management. Governance starts at the very top of a company and addresses the alignment of interests between management and investors as well as the company’s ability to hold themselves liable to and act on behalf of their stakeholders. Large corporate losses have occurred from poor governance; for example, consider the fraudulent behavior from companies like Volkswagen and Enron. Companies with strong governance that is actively reported on maintain a checks and balances system that allows for great trust and transparency.

Social capital

ESG reporting is also becoming vital to understanding a company’s corporate mission, strategy, and management values. While the values and culture of a company haven’t been considered much in the past, investors now understand how strong social and human capital management improves a company’s ability to retain talented employees, decreases costly turnover, increases work safety, protects employees, and enhances company brand perception.

Bottom line: companies that adhere to ESG reporting standards provide better access to resources, optimize opportunities while decreasing risk, boost employee motivation, attract better talent, and ultimately enhance investment returns through responsible, long-term growth.

ESG materiality assessments

With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.

An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

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Chris Ogletree

In his role as Marketing Manager, Chris oversees website administration & development of a wide range of content, including email campaigns, social media, & marketing collateral, as well as supporting improvements to the design & functionality of the platform.

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